Slower Growth and Mixed Signals as China Strives for Economic Stability
China’s National Bureau of Statistics reported on Monday that the country’s second-quarter GDP grew by 4.7% year on year, a slight deceleration from the 5.3% growth in the first quarter. This growth fell short of the 5.1% expectation from a Reuters poll, highlighting the complexities of China’s economic recovery amidst ongoing domestic and global challenges.
Mixed Performance Across Sectors
While the overall GDP growth showed a slowdown, industrial production outperformed expectations, rising by 5.3% year on year in June against a projected 5%. High-tech manufacturing, in particular, demonstrated robust growth with an 8.8% increase in value-added. However, retail sales did not meet forecasts, increasing by only 2% in June compared to the anticipated 3.3% growth.
Oxford Economics noted a significant decline in discretionary retail spending, the sharpest sequential drop since the April 2022 Shanghai lockdowns. This led the firm to adjust its 2024 GDP growth forecast for China to 4.8%, an increase from the 4.4% estimate made in December 2023.
Investment and Real Estate Trends
Urban fixed asset investment for the first half of the year rose by 3.9%, aligning with expectations. Despite this, investment in infrastructure and manufacturing showed signs of slowing down in June compared to May. Real estate investment continued to decline at a rate of 10.1%.
The real estate market faced additional challenges, with housing-related wealth in China increasing by only 2.2% in 2023, a significant drop from the 13% average annual pace between 2016 and 2021. This slowdown underscores the broader economic issues affecting consumer confidence and spending.
Employment and Income Disparities
The urban unemployment rate remained stable at 5% in June. However, youth unemployment, particularly for those aged 16 to 24 not in school, remained high at 14.2% in May. Average per capita disposable income for urban residents rose by 4.6% to 27,561 yuan ($3,801) in the first half of the year, while rural disposable income grew faster at 6.8%, yet still lagged significantly behind urban income levels at 11,272 yuan.
No Press Conference, But Policy Meetings Ahead
Notably, the National Bureau of Statistics did not hold a press conference to discuss these figures. However, attention is now turning to China’s high-level policy meeting, the Third Plenum, which began on Monday. Bruce Pang, chief economist and head of research for Greater China at JLL, expressed optimism about the meeting’s potential to boost confidence and stabilize expectations.
Despite achieving a 5% GDP growth in the first half of the year, Pang indicated that more efforts are required to reach the full-year growth target of around 5%. This challenge is amplified by the likely slower growth in the second half of the year.
Export Resilience Amid Trade Tensions
China’s exports have been a bright spot, growing by 8.6% year on year in June, surpassing expectations. However, imports fell by 2.3%, missing forecasts for slight growth. This mixed trade data reflects ongoing uncertainties in the global economic landscape, including trade tensions.
Xu Hongcai, deputy director of the Economics Policy Commission at the China Association of Policy Science, suggested that China could enhance fiscal support and ease monetary policy in the second half of the year to sustain growth.
Consumer Spending and Price Trends
Retail sales for the first half of the year grew by 3.7%, with online sales of physical goods rising by 8.8%. However, there were notable declines in certain categories, such as a 14.6% year-on-year drop in cosmetics sales in June, marking it as the worst-performing sector. In contrast, sales of communications equipment, sports, and entertainment goods showed significant growth.
China’s consumer prices rose by a modest 0.2% in June year on year, missing expectations. The core CPI, which excludes volatile food and energy prices, increased by 0.6%, slightly down from the 0.7% rise in the first six months of the year, indicating subdued domestic demand.
Credit Demand and Monetary Policy
Recent credit data from the People’s Bank of China highlighted a significant decline in new loans. Household loans increased by 1.46 trillion yuan in the first half of the year, nearly half of last year’s figure. Business loans also saw a decrease, totaling 11 trillion yuan compared to 12.81 trillion yuan in the same period last year.
Goldman Sachs analysts noted that the weak credit demand suggests a focus on enhancing monetary policy transmission over aggregate credit growth. This indicates that future growth in new CNY loans and M2 money supply may slow further.
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